Difficult decisions at the intersection of REI and Covid-19

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Difficult decisions at the intersection of REI and Covid-19

Blake Hansen
Handyman · El Cerrito, CA · Member since 2016 · 16 posts · 8 votes

After YEARS of analysis paralysis regarding rent and hold (with BRRRR in mind) my wife and I finally have plans to close this week or early next. 3/2 SFR. Every penny towards our down payment and all estimated rehab costs represents a choice to not eat dinner at a restaurant, not buy our kids the item at the top of their Christmas list, etc. At the end, if we were able to rent it out within two months of finishing rehab we'd be left with next to no money in the bank. However, we were conservatively set to clear $400 per month.

All was moving smoothly when the world got hit with this new reality. This morning my wife woke up suggested we cut our losses and let this one go until things start to look normal again. Financially, our losses refer to $5k earnest money and hours of relationship building with various parties involved (loan officer, RE agents on both sides of the deal, seller). It pains me to think of letting this go.

Anyone else out there weighing difficult decisions? I'd welcome feedback and perspective during this time of great need for connection.

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  • Will G.
    Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y

    Just reading this is uncomfortable, late in r.e. cycle, top of market purchase with a big rehab project, and what sounds like minimal reserves if rehab takes longer than expected, or job losses freeze the market in the short term. I would seriously consider taking the wife's advice, mostly because we don't know what the new "normal" will be like.

    Your conservative $400 month cash flow is with 35% of rent for expenses?

    Is your rental market adding jobs, employment outlook very positive before virus crisis?

    Does your market have a lot of short term rentals? If so a lot of them might have to be put on the market as long term rentals.

    If the deal is marginal I would have to say move on without it, no one would blame you, the landscape has changed drastically, and is your income secure?

    You will make up that $5k on the next deal if you decide to cancel

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  • Adam TafelBusiness Member
    Real Estate Agent · St. Paul, MN · Member since 2017 · 580 posts · 396 votes
    6y

    @Blake Hansen - my heart goes out to you and your wife, I can't imagine the stress you're feeling today. I'm not going to attempt to give direct advice, as I'm not privy to enough details and can't predict the future. My advice is simple: look for direction from unbiased parties, and take everything said by agents, lenders, and sellers with a grain of salt. Everyone involved wants this deal to go through, but you won't burn any bridges by pulling out due to extenuating circumstances. Posting on BP is a great first step, do you have any trusted advisors locally who you can meet with? Investors that have seen multiple economic cycles throughout their careers? Best of luck brother! 

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  • Scott Savard
    Franklin, MA · Member since 2018 · 47 posts · 14 votes
    6y

    @Blake Hansen sorry to hear. It sounds like you are one of many unlucky buyers caught right in the middle of this whole craziness. It's tough to tell exactly what's going to happen with the real estate market as a whole but here is my two cents on your situation..

    1) You need to make the decision based on the financial impact that this can potentially have on you and your family. Rather than think of "Best Case Scenario" think of the "Worst Case Scenario". If you and your family can afford to still live as comfortably as you need to in the worst case scenario, then factor that into your decision and move on to the next point. If you and your family cannot live as comfortably as you need to with the worst case scenario than cut your losses and stop immediately. It's not worth putting your family at risk. 

    2) This investment is about you, your wife and your family not the loan officer, re agents or anyone else. This whole situation has been unexpected and is making a lot of people rethink certain opportunities. Anyone that you are working with should understand if you decide to call this deal off. If they do not, then they weren't keeping you in their best interest to begin with and you should go find other vendors that do. 

    3) If you are questioning moving forward, then it doesn't seem like it was an unbelievable deal to begin with. By the looks of it, there MAY be plenty more coming on the market in the near future. If not I'm sure you can find one similar to this a few months from now as I think we can all agree that the RE is not going up any time soon.

     I hope this helps!


     

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